The latest Federal Trade Commission (FTC) action in furtherance of its avowed commitment to “restore fairness to the American labor market” involves a no-poach investigation, not a noncompete case. Last week, the FTC announced that it and the New Jersey Attorney General’s Office reached settlements with a building services company barring it from using no-hire agreements.

According to New Jersey’s attorney general: “When employers enter into no-hire agreements, employees pay the price. They have fewer job opportunities, lower wages, and weaker benefits. That’s why our office is committed to ending these unlawful labor practices across our state.” The FTC expressed a similar sentiment: “American workers have a right to pursue job opportunities that offer them higher pay and better benefits. Yet anticompetitive no-hire agreements . . . prevent workers from realizing their full earning potential.”

The FTC’s complaint alleges that the no-hire provisions violate both Section 1 of the Sherman Act, which prohibits agreements that unreasonably restrain trade, and Section 5 of the FTC Act, which bars unfair methods of competition. The agency defines “no-hire agreements” as an agreement between the vendor and its customer that restricts, imposes conditions on, or otherwise limits the customer’s or any other person’s ability to solicit, recruit, or hire an employee, directly or indirectly, either during employment or for any period of time after, including by imposing fees.

The injury to competition alleged under Section 1 includes the elimination of direct, horizontal, and significant forms of competition to attract labor in the U.S. building services industry, thereby denying employees access to job opportunities, restricting their mobility, and depriving them of competitively significant information that they could have used to negotiate for better terms.

With respect to Section 5, the FTC claims that the no-hire agreements tend or are likely to harm competition, consumers, and employees in the building services industry. Restricting the ability of building owners and competing building service contractors to hire employees harms:

  • Employees because it limits their ability to negotiate for higher wages, better benefits, and improved working conditions, and may lead to further hardship if the building where they work changes management, because the no-hire agreements force them to leave their jobs in some circumstances.  
  • Building owners and managers because they may be foreclosed from seeking or accepting bids from competitor vendors due to the prospect of losing long-serving workers with extensive, building-specific experience.  

Based on published information, the vendor told FTC staff that it did not enforce the no-hire provisions. During the course of the investigation, begun in the prior administration, however, the FTC learned that there had been at least one attempt to enforce compliance. An FTC statement also notes that any legitimate objectives of no-hire agreements could have been achieved through significantly less restrictive means. The agency specified that, among other terms, the scope and duration of the restrictions were not reasonably necessary to achieve the purported procompetitive purpose.

Before the most recent government shutdown, the FTC made clear its intent to bring enforcement actions against conduct likely to harm labor markets, although the focus then appeared to be “unfair” employee noncompete agreements. In September, the FTC abandoned its defense of its 2024 rule banning virtually all worker noncompetes, entered into a settlement agreement with a pet cemetery operator prohibiting use of noncompete clauses in its employment agreements, and issued a Request for Information Regarding Employer Noncompete Agreements to enlist the public in identification of “specific employers continu[ing] to impose noncompete agreements,” and announced that it would host a workshop regarding unfair noncompete agreements.

The FTC’s noncompete workshop has been rescheduled for January 27, 2026, with an agenda for three panels: (1) Locked out of Work: Victims of Anticompetitive Noncompetes; (2) Unleashing the American Worker: Policy Perspectives on Noncompetes; and (3) Counting the Costs: The Economics of Noncompetes.

Key Takeaways

Although the public case materials provide limited information, there are some key takeaways from the latest FTC enforcement action:

  • Make certain that any representations made to agency staff are accurate.  
  • The FTC intends to continue to police labor markets in terms of no-hire and noncompete agreements.  
  • Restrictions on worker movement should be framed as narrowly as possible to accomplish a specific and demonstrable procompetitive goal.  
  • “Penalties” or fees designed to prevent worker departures or improved bargaining positions should be avoided. The more significant the fee, the greater the antitrust risk.  
  • Restraints that go beyond the employees staffed on the specific project that is the subject of the contract are riskier.  
  • Noncompete and no-hire provisions are riskier when the impacted employees are low-skilled workers, largely because it can be difficult to justify the restrictions.  
  • Even restraints that exceed the term of employment by only six months may be excessive, particularly if low-skilled workers are affected.  
  • Worker restrictions should not be designed to prevent competition in market for the employer’s products or services.  

Our Antitrust and Labor & Employment teams are closely monitoring these developments and are available to assist clients in assessing potential risks and opportunities arising from related matters.

Eastern District of Pennsylvania Decision Highlights Critical Contract Drafting Issues

A recent federal court decision is an important reminder for construction industry professionals about the precise language needed to make mediation a mandatory step before litigation. On November 18, 2025, the U.S. District Court for the Eastern District of Pennsylvania ruled in Healy Long & Jevin, Inc. v. CQSA Construction, LLC that a dispute resolution clause failed to create a binding condition precedent to litigation, despite the general contractor’s arguments to the contrary.

Background

The dispute arose from a mixed-use retail and residential development project in South Philadelphia. Subcontractor Healy Long & Jevin, Inc. filed a lawsuit against general contractor Post General Contracting, LLC (whose interests were later assigned to CQSA Construction, LLC) after experiencing nearly $14 million in delay damages and being denied payment of the outstanding contract balance.

CQSA moved to dismiss the lawsuit, arguing that Healy failed to satisfy a contractual requirement to mediate before suing. The contract’s dispute resolution provision stated that parties “shall endeavor to resolve their Claims by mediation” and noted that mediation requests “may be made concurrently with the filing of binding dispute resolution proceedings.” The provision also required that if filed concurrently, the litigation would be stayed for 60 days while mediation proceeded.

The court denied CQSA’s motion to dismiss, finding that the mediation clause did not establish a condition precedent to litigation. The court emphasized that the contract’s use of the soft verb “endeavor” and the explicit allowance for parties to request mediation “concurrently” with filing a lawsuit demonstrated that mediation was not mandatory before initiating legal proceedings.

The court contrasted this provision with clauses in other cases where courts found conditions precedent existed, such as language stating parties could proceed with litigation “only if a reasonable attempt at mediation is unsuccessful.” While the court ordered a 60-day stay to allow for mediation, it made clear that the failure to mediate first was not grounds for dismissal.

Critical Mediation Provision Drafting Tips

The following three tips can help avoid a result like Healy:

First, use express “condition precedent” language. Explicitly state that mediation is a “condition precedent” to litigation or arbitration. Avoid ambiguous terms like “endeavor” or provisions that allow inconsistent actions, such as simultaneously requesting mediation and filing suit.

Second, prohibit filing until mediation concludes. Clearly define when mediation is considered “complete” — whether through mediator declaration of impasse, expiration of a specific timeframe, or mutual agreement. This eliminates ambiguity about when parties may proceed to litigation.

Third, establish consequences for noncompliance. Include provisions allowing parties to recover attorneys’ fees if they must move to dismiss a prematurely filed action. This reinforces the mandatory nature of the mediation requirement.

Why This Matters

Construction disputes are prone to be lengthy, costly, and complex because of extended project deadlines, technical intricacies, and numerous potential claim issues. For these reasons, many construction entities prefer alternative dispute resolution methods like mediation. But as Healy demonstrates, poorly drafted mediation clauses may fail to achieve their intended purpose. Construction stakeholders should review their standard contract templates to ensure dispute resolution provisions accurately reflect their intentions and include the necessary express language to make mediation truly mandatory when desired.

Troutman Pepper Locke attorneys are well positioned to advise clients on construction contract drafting and negotiations, as well as in navigating construction project disputes with all types of project stakeholders.

This article was originally published on Bloomberg Law and is republished here with permission as it originally appeared on December 22, 2025.

The indictment of Cleveland Guardians pitchers Emmanuel Clase and Luis Ortiz reprises a familiar white collar crime playbook, applying a series of fraud, money laundering, and conspiracy charges to a novel sports betting scheme.

The Department of Justice alleges the baseball players coordinated with co-conspirators on pitch selection so bettors could place prop wagers keyed to those pitches, sometimes with bribes and kickback payments routed through third parties. Both men have pleaded not guilty to the charges.

While the charges are familiar tools for prosecutors, the application isn’t and could pose unexpected challenges and give defense counsel an opening to make legal arguments against these fraud statutes applying to sports betting conduct.

Sports Gambling Fraud

Prevailing on wire fraud conspiracy likely will turn on whether the government can show a material misrepresentation tied to the bets and payouts. Wire fraud requires use of the interstate electronic communications to execute a scheme to defraud, or to obtain money or property, by means of false or fraudulent pretenses, representations, or promises. As the US Supreme Court reaffirmed earlier this year in Kousisis v. United States, the alleged falsehood must also be material—not merely an “everyday misstatement,” but “actionable fraud.”

The government will likely argue that placing wagers under a batting platform’s terms of service, while secretly using non-public information and coordinated manipulation to affect outcomes, constitutes an implied misrepresentation.

Defendants may counter that there was no material misrepresentation to the platforms and that having less accurate information isn’t deceit absent an affirmative lie or half-truth. They may also argue sportsbooks price risks, including the possibility of manipulation, making the conduct at issue a cost of doing business.

Defendants likely will argue that even if coordination occurred, intervening game actions can disrupt prearranged outcomes, complicating proof that deceit caused specific payouts.

‘Duty of Loyalty’

Conspiracy to commit honest services wire fraud requires the government to prove the existence of a fraudulent scheme to deprive another of honest services through bribes or kickbacks supplied by a third party who hadn’t been deceived.

The government must also show that defendants owed a fiduciary duty to the alleged victims—the Cleveland Guardians and Major League Baseball.

The indictment cites contractual language asserting the players owed “a duty of loyalty to the Cleveland Guardians and pledged [themselves] to the American public and the Cleveland Guardians to conform to high standards of personal conduct, fair play and good sportsmanship.”

The government’s likely theory is that the bribery and kickbacks corrupted the services owed by Clase and Ortiz to their team and the league.

But such corruption may be harder to prove than anticipated.

Defendants can argue their team wasn’t deprived of honest services when their pitch outcomes were similar to previous games.

That argument will be more persuasive for some pitches than others. For the May 19, 2023, pitch by Clase cited in the indictment, it may be hard to prove that Clase breached a duty to his team by merely throwing a pitch at his average speed, which was faster than the betting line of just under 95 mph.

More questions arise about fair play for other pitches highlighted in the indictment, like one Clase threw on April 12, 2025. Bettors allegedly won $15,000 by wagering it would be a ball or hit-by-pitch and slower than 98.45 mph.

According to the indictment, Clase threw the pitch in question “into the grass well before home plate,” which was unlikely the team’s intent.

Contemporaneous evidence of coordination between defendants and the bettors then becomes critical. The indictment alleges that, after the April 12 pitch, Clase texted a bettor to ask if he was able to “wager anything,” and told him to send the winnings to a recipient in the Dominican Republic “as if it were someone else.”

The government will need to introduce similar contemporaneous communications to establish intent and corruption of duty. Even if defendants are convicted, raising reasonable doubt as to specific pitches could reduce loss calculations at sentencing.

Practical Takeaways

In defending cases that allege prop bet manipulation, speed and sequencing matter. Betting patterns aligned with receipt of inside information and the timing of specific pitches will be critical evidence for both sides.

Given that players’ communications with the alleged bettors is a key issue, defense counsel should quickly devote time to a disciplined forensic analysis of communications by securing and imaging devices, locking down cloud accounts, collecting banking records, and obtaining any betting platform data. Prosecutors will likely focus on the timing and use of cell phones by defendants during games, which is against MLB rules.

Counsel should also begin developing their sentencing strategy well before trial. Loss calculations, which largely will dictate the sentencing guidelines if defendants are convicted, maybe an area of vulnerability for the government.

If the defendants ultimately decide to plead guilty, it will also be critical that they preserve acceptance of responsibility arguments, which they can use to gain credit under the US Sentencing Guidelines toward a shorter term of incarceration.

Traditional fraud statutes remain potent tools in the sports betting era, but the strongest cases hinge on demonstrable deceit tied to event integrity and platform compliance—not just that one party has better information than the other.

Prosecutors who center their theories on concealed manipulation and money or property injury are better positioned to clear legal hurdles, while defense counsel should probe materiality, duty, and causation with precision.

As leagues, sportsbooks, and regulators deepen data-sharing and oversight, practitioners on both sides should expect more analytically demanding prosecutions, and should tailor strategies to the evidentiary realities and proportionality principles that define this evolving field.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Megan Rahman is partner at Troutman Pepper Locke, and provides advice to individuals and corporations facing regulatory, civil, and criminal investigations.

Kristin Jones is partner at Troutman Pepper Locke and represents clients in civil and white collar criminal matters.

Zachary Epstein is an associate at Troutman Pepper Locke and represents corporate and individual clients facing investigations by the US Department of Justice, internal investigations, and civil fraud litigation.

Summary

Two related Framingham, MA, restaurants, Samba Steak and Sushi (Samba) and China Gourmet, and their owners entered into a consent judgment with the U.S. Department of Labor (DOL) resolving claims that they violated the Fair Labor Standards Act’s (FLSA) overtime, recordkeeping, and anti-retaliation provisions.

The matter underscores several key enforcement themes:

  • The DOL’s increasing focus on repeat violators.  
  • Significant liability risk associated with paying “flat” monthly salaries to nonexempt employees who work substantial overtime.  
  • The DOL’s aggressive stance on retaliation during investigations, including immigration-related threats and efforts to interfere with employee cooperation.  

Employers should take this case as a reminder to review their pay practices, recordkeeping procedures, and protocols for responding to government investigations.

Background

The DOL alleged that the two restaurants:

  • Paid workers flat monthly salaries ranging from $2,200 to $3,000;  
  • Required employees to work at least 54 hours per week, often 60 or more hours;  
  • Failed to pay overtime premiums for hours worked over 40 hours in a workweek; and  
  • Maintained inadequate and inaccurate records of hours worked.  

The restaurants had previously been investigated by the DOL in 2020. That investigation resulted in pre-litigation settlements in which the restaurants agreed to pay more than $250,000 in back wages and to comply with the FLSA going forward.

Despite those commitments, a renewed investigation in 2022 led the DOL to conclude that the restaurants continued to violate the FLSA and, in addition, Samba engaged in unlawful retaliation.

Alleged Retaliation

During the 2022 investigation, the DOL alleged that Samba and its owner took steps to discourage employee cooperation and conceal ongoing violations, including:

  • Directing employees to leave or stay away from the restaurant on at least two occasions when the DOL investigator visited.  
  • Falsely telling workers that immigration authorities were on site when the person in the restaurant was actually a DOL investigator.  
  • Requiring employees to sign false time records that understated hours worked.  
  • Demanding that workers produce Social Security cards within two weeks or be fired, in the context of the ongoing investigation.  

The DOL treated these actions as retaliation under the FLSA.

The Consent Judgment

To resolve the DOL’s claims, Samba, China Gourmet, and their owners agreed to:

  • Pay $215,000 in total overtime back wages, liquidated damages, and punitive damages.  
  • Comply with the FLSA going forward, including properly compensating overtime-eligible employees and maintaining accurate records of hours worked.  

This financial obligation comes on top of the more than $250,000 previously paid under the 2020 settlements, placing the total financial impact for these businesses at $465,000.

Practical Steps for Employers

In light of this consent judgment, employers — particularly in the restaurant and hospitality sectors — should consider the following actions:

  1. Audit Pay Practices for Nonexempt Employees
    • Confirm that all nonexempt employees who work more than 40 hours per week receive proper overtime premiums.  
    • Review any “flat salary” or “day rate” arrangements to ensure they comply with overtime requirements.  
    • Evaluate whether any positions classified as exempt truly meet both the duties and salary-basis tests.  
  2. Strengthen Timekeeping and Recordkeeping Systems
    • Implement reliable methods for recording all hours worked (including pre- and post-shift work and off-the-clock tasks).  
    • Prohibit supervisors from altering time records without documented, legitimate business reasons.  
    • Regularly review time records for anomalies (e.g., identical hours every week or a lack of recorded overtime in roles that realistically require long hours).  
  3. Establish Clear Nonretaliation and Investigation Protocols
    • Adopt or update written nonretaliation policies covering participation in government investigations and internal complaints.  
    • Train owners, managers, and supervisors on how to respond to DOL visits, including:
      • Cooperating with investigators;  
      • Avoiding any suggestion that employees should not speak to investigators;  
      • Refraining from any comments or actions that could be perceived as threats or intimidation.  
    • Emphasize that employees are free to speak with investigators without approval or oversight.  
  4. Address Immigration-Related Risks Carefully
    • Train management not to reference immigration status in connection with wage complaints or investigations.  
    • Ensure that any requests for documentation (such as Social Security cards or I-9 verification) are handled in a consistent, nondiscriminatory manner and are not timed to coincide with complaints or investigations.  
  5. Treat Repeat Issues as a Priority Compliance Matter
    • If your organization has previously resolved DOL or state wage-hour investigations, ensure that any promised changes were actually implemented and are sustained.  
    • Conduct periodic follow-up reviews to confirm ongoing compliance, rather than treating settlement-related changes as one-time tasks.  

Conclusion

This case serves as a reminder that:

  • The DOL closely monitors employers it has previously investigated;  
  • Flat monthly pay arrangements for nonexempt employees working significant overtime are high risk; and  
  • Retaliation or interference with investigations can magnify liability.  

If you would like assistance reviewing your overtime practices, timekeeping systems, or investigation protocols, or in developing training for managers on interacting with government investigators, we can help design a tailored compliance plan.

On December 15, 2025, the U.S. Court of International Trade (USCIT) issued a decision in AGS Company Automotive Solutions et al. v. United States, Slip Op. 25-154, addressing how importers can preserve their rights to recover duties imposed under the International Emergency Economic Powers Act (IEEPA) on certain goods imported into the United States. In this consolidated case, brought by a group of importers including a large national retailer, the USCIT held that liquidation of entries subject to IEEPA tariffs will not, by itself, prevent the court from ordering reliquidation (the process by which it restarts the liquidation clock and duties are recalculated) and refunds if those tariffs are ultimately found unlawful by the Supreme Court of the United States. The relevant appeals have been consolidated and are currently pending before the Supreme Court.

The USCIT confirmed that importers who have already filed timely court challenges to the IEEPA tariffs will not lose their ability to obtain refunds solely because their entries liquidate while the Supreme Court considers the legality of these tariffs. At the same time, the decision does not create a general, automatic refund mechanism for all affected importers. The opinion focuses on the court’s authority to grant judicial relief in cases properly before it and on the federal government’s litigation representations in those cases.

The court also clarified that these constitutional challenges to the IEEPA tariffs fall within the USCIT’s residual jurisdiction under 28 U.S.C. § 1581(i) — rather than the ordinary protest route — and that claims for judicial relief are subject to a two-year statute of limitations. Residual jurisdiction empowers the USCIT to hear civil actions arising out of laws governing import transactions that do not fit within its more specific jurisdictional grants, effectively serving as a catch-all for review of certain trade-related agency actions. This underscores an important distinction: liquidation may create “administrative finality” under the customs statutes, but it does not extinguish the USCIT’s authority to grant relief in these constitutional cases.

The key takeaway is that liquidation, by itself, will not extinguish refund rights while the IEEPA tariffs are being challenged. Although the USCIT did not explicitly state that importers must be plaintiffs in this litigation, it did indicate that refunds may not be recoverable solely through filing administrative protests under 19 U.S.C. § 1514(a).

Plaintiffs’ Concerns and USCIT’s Holding

As discussed in a previous alert, the plaintiffs sought to suspend liquidation on the grounds that importers would suffer irreparable harm if U.S. Customs and Border Protection (CBP) were allowed to finalize (i.e., liquidate) the assessment of certain IEEPA duties, thereby limiting importers’ ability to challenge those duties and obtain refunds should the Supreme Court rule the IEEPA tariffs unconstitutional. In the ordinary course, once CBP liquidates an entry, the duty assessment generally becomes final, with only narrow avenues remaining to contest or change that assessment.

Plaintiffs were particularly concerned that CBP could begin liquidating entries as early as December 15 — approximately 314 days after entry — consistent with CBP’s internal operating guidelines, rather than the full one‑year period set by statute, and that such liquidation could effectively foreclose importers’ ability to protest and risk waiving potential refund rights.

Ultimately, the USCIT found no irreparable injury because the government, through the U.S. Department of Justice, has “made very clear — both in this case and in related cases — that [it] will not object to the [c]ourt ordering reliquidation of plaintiff’s entries subject to the challenged IEEPA duties if such duties are found to be unlawful.” In other words, the government represented that it would not oppose the USCIT restarting the liquidation process for entries at issue in this and related IEEPA litigation if the tariffs are struck down.

The USCIT emphasized that the IEEPA litigation presents a constitutional question — one that CBP has no authority to resolve and that rests exclusively with the courts. As a result, there can be no effective administrative protest of the IEEPA tariffs themselves, and liquidation does not create true finality as to their lawfulness. Instead, the court retains jurisdiction to order reliquidation and grant refunds if the Supreme Court ultimately determines the tariffs to be unlawful.

US Government’s Response and the Limits of Administrative Relief

While the government has acknowledged that the USCIT has authority to order reliquidation in these circumstances, it has not committed to any automatic or administrative refund process if the Supreme Court strikes down the IEEPA tariffs.

The USCIT’s opinion notes that the government is effectively bound, through principles like judicial estoppel, by the positions it has taken in this and related cases — specifically, its assurances that it will not oppose court‑ordered reliquidation of affected entries. But those assurances are directed at the litigation before the USCIT, not at the broader universe of importers who have not filed suit.

This decision, therefore, underscores that traditional administrative mechanisms — such as routine protests of liquidation — may not be sufficient on their own to secure refunds of IEEPA duties. The court’s reasoning and the government’s concessions are framed narrowly around the power of the USCIT to grant judicial relief in cases that are properly brought. Importers who have not filed suit cannot rely on this decision as assurance that liquidation will be “fixed” later through systemic administrative action, even if the Supreme Court ultimately invalidates the tariffs.

The Pending Supreme Court Case

The USCIT’s ruling comes against the backdrop of the Supreme Court’s review of the IEEPA tariff regime in consolidated appeals challenging the legality of these tariffs. The Court heard oral argument in November 2025, and a decision is widely expected by mid‑2026. Should the Supreme Court hold that these tariffs are not authorized under IEEPA or are otherwise unlawful, that decision will likely shape what procedural avenues importers must use to recover duties already paid.

There are several key uncertainties that may be addressed — or left open — by the Supreme Court’s ruling, including:

  • The scope of any refund discussion: Whether the Supreme Court signals that relief is limited to parties before the courts or contemplates broader remedial pathways.  
  • CBP’s potential response: Whether CBP establishes a systemic reliquidation or refund process, or defers to litigation‑based remedies.  
  • Judicial remedial discretion: How lower courts will treat requests for broad remedial relief, including for importers that were not parties to earlier suits.  

A significant number of importers have already filed cases in the USCIT seeking full refunds of IEEPA duties, and the recent decision helps ensure that those plaintiffs will not be procedurally barred from relief by the mere passage of time and liquidation of their entries. At the same time, the decision does not guarantee refunds, does not bind the government to any particular refund process, and does not expand rights for importers that have not yet filed suit.

Moving Forward

In light of the recent USCIT ruling and the pending Supreme Court decision, importers that have paid or continue to pay IEEPA tariffs may wish to evaluate their exposure and potential preservation strategies. In particular, companies may consider:

  • Mapping their exposure: Identifying all entries subject to IEEPA tariffs since their inception and quantifying the duties at issue.  
  • Tracking liquidation and protest timelines: Monitoring liquidation dates closely (with December 15, 2025, representing the first major wave, and associated protest deadlines occurring in mid‑June 2026) and understand how those dates interact with both administrative options and the USCIT’s two‑year limitations framework for judicial relief.  
  • Evaluating litigation posture: Coordinating with legal counsel to determine whether to file or join USCIT litigation now, rather than relying on the possibility of future administrative relief or a broad Supreme Court remedy.  

The analysis can be more complex where companies indirectly bear the cost of IEEPA tariffs through pass‑through pricing rather than acting as the importer of record themselves. In many cases, only the importer of record has standing to pursue customs remedies or seek refunds, even if another party in the supply chain ultimately shouldered the economic burden of the duties. Companies in this position may wish to coordinate with their suppliers, contract manufacturers, or other entities serving as the importer of record to understand: (i) who controls potential claims; (ii) what steps those parties plan to take to preserve potential refund rights (e.g., protests or litigation); (iii) how any recovery might be shared or allocated; and (iv) whether existing contracts adequately address tariff‑related rights, obligations, and cooperation in pursuing potential relief.

Inaction could, in some circumstances, result in forfeiting or narrowing potential recovery and may limit the avenues available to seek such recovery, even if the IEEPA tariffs are later declared unlawful. This remains true even though the USCIT has confirmed that liquidation alone will not bar judicial relief in properly filed cases.

Troutman Pepper Locke has a dedicated Tariff + Trade Task Force to aid clients in navigating and anticipating the impacts that evolving tariffs have on their businesses. We will continue to monitor developments in the Supreme Court and the USCIT and can help guide you through appropriate preservation and recovery strategies.

This article was originally published on December 15, 2025 on Law360 and is republished here with permission.

Chapter 15 of the U.S. Bankruptcy Code, designed to provide an efficient, coordinated framework for handling cross-border insolvency cases, is a very specific and powerful tool for insolvency professionals.

Enacted in 2005, it incorporates the United Nations Commission on International Trade Law‘s Model Law on Cross-Border Insolvency, aiming to promote cooperation between U.S. courts and foreign courts when a debtor’s financial affairs span multiple countries. At its core, it ensures that cross-border proceedings are administered in a fair and orderly fashion, while protecting creditors, debtors and other stakeholders, primarily through the recognition of orders issued by foreign tribunals.

Chiefly through its recognition framework, Chapter 15 promotes international cooperation, encourages consistent rulings across jurisdictions, and reduces duplicative or conflicting litigation.

Several notable decisions and trends flowing from Chapter 15 warrant review before turning the page to 2026. In 2025, courts issued decisions that clarified the framework of Chapter 15 following a landmark U.S. Supreme Court decision in Harrington v. Purdue Pharma LP, reinforced the principles of a debtor’s center of main interest in the face of extensive mass tort litigation, and analyzed synthetic cross-border proceedings.

1. Recognition of Third-Party Releases Under Chapter 15

Nonconsensual third-party releases developed over a period of more than 40 years, arising from asbestos litigation and settlement trusts and expanding more broadly into mass tort matters and beyond. Prior to June 2024, although not without controversy, courts in some jurisdictions authorized and enforced nonconsensual third-party releases as part of restructuring plans. Leading up to the Supreme Court’s 2024 decision in Purdue Pharma, nonconsensual third-party releases had both strong advocates and critics.[1]

The Supreme Court ultimately provided clarity to this decades-long dispute in Purdue, rejecting nonconsensual third-party releases. In doing so, the court’s analysis chiefly focused on two findings: (1) Section 1123(b)(6) of the Bankruptcy Code cannot be broadly interpreted to allow a nonconsensual release of a nondebtor, and (2) the availability of a discharge and nonconsensual releases under the Bankruptcy Code have historically only been reserved for a debtor, not third parties.

Recent decisions from bankruptcy courts in the Southern District of New York and District of Delaware in Chapter 15 cases addressed the potential applicability of the Purdue decision outside the Chapter 11 context.

In In re: Credito Real SAB de CV, the U.S. Bankruptcy Court for the District of Delaware found on April 1 that the nonconsensual third-party releases ordered by a foreign court were enforceable.[2]

Similarly, in In re: Odebrecht Engenharia e Construcao SA, Chief U.S. Bankruptcy Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York held on April 21 that recognition was appropriate and enforcement of the foreign court order granting nonconsensual third-party releases was consistent with Chapter 15.[3]

Both opinions focused on two issues: whether the plain statutory text of Chapter 15 addressed nonconsensual third-party releases and whether granting recognition of a foreign order containing such releases would violate U.S. public policy.

First, focusing on the overall purpose of Chapter 15’s statutory regime, each bankruptcy court noted that the purpose of the statute is to allow a court to provide a foreign representative with “appropriate relief” and “additional assistance” through the bankruptcy court’s granting of comity to foreign court orders.

The Credito Real court further noted that the plain statutory language of Chapter 15 did not address nonconsensual third-party releases, finding that comity is the keystone of Chapter 15 and distinctions between relief available under Chapter 15 and Chapter 11 are entirely appropriate. That is, the Purdue decision does not alter the statutory text of Chapter 15 and that such statutory text does not explicitly exclude the recognition of foreign orders granting nonconsensual third-party releases that may otherwise be questioned under Chapter 11.

Second, and illustrative of just how powerful a tool Chapter 15 is for distressed companies, each court addressed the public policy component of Chapter 15 and concluded it presented no bar to enforcing the foreign orders.

Section 1506 of the Bankruptcy Code provides that recognition should be denied if doing so is manifestly contrary to public policy. This exception, however, is narrowly construed.

The Credito Real court focused its public policy analysis on the procedural safeguards and fairness afforded to parties by the foreign proceeding. For example, it acknowledged that U.S. courts have frequently recognized similar Mexican concurso plans “as being the product of a fair process” and the embodiment of “arms’-length agreements and conform[ing] to the general distribution priorities established in the Bankruptcy Code.”

Further, the Credito Real court clarified that nonconsensual releases are not per se prohibited under the Bankruptcy Code as against public policy — to the contrary, they are expressly permitted in the context of asbestos cases. As such, the court concluded there was no reason to deny recognition on public policy grounds.

The Odebrecht court conducted a similar analysis and reached the same conclusion, also noting the Bankruptcy Code does authorize nonconsensual third-party releases in certain contexts and that “[l]ongstanding precedent holds that bankruptcy courts can strip U.S. parties of rights they have under the laws of the United States.”

These two decisions, from the leading bankruptcy venues for complex Chapter 15 filings, suggest that Purdue presents no impediment for the recognition and enforcement of nonconsensual third-party releases that have been authorized in foreign proceedings.

These 2025 holdings provide a clear path, although perhaps a long one, for multinational debtors to achieve nonconsensual releases for their directors, officers, insiders and lenders that would not be available to them in a Chapter 11 case: (1) establish a non-U.S. jurisdiction as their center of main interest, (2) file an insolvency proceeding there, (3) obtain the desired releases, and (4) seek recognition in the U.S. under Chapter 15.

Now that this blueprint has been established, debtors with a non-U.S. footprint — particularly those with mass tort liabilities — will need to think carefully about where, and under which insolvency regime, their liabilities can best be restructured.

On Dec. 1, the U.S. District Court for the Southern District of New York overturned confirmation of the Chapter 11 plan of reorganization of Brazilian airline Gol Linhas Aereas Inteligentes on the basis that the bankruptcy court improperly found creditor silence on the plan’s third-party releases constituted consent. The decision in In re: Gol Linhas Aereas Inteligentes SA highlights the potential importance of this issue.[4]

2. The Recognition of So-Called Synthetic Cross-Border Proceedings

In February, in In re: Mega Newco Ltd., U.S. Bankruptcy Judge Michael E. Wiles of the U.S. Bankruptcy Court for the Southern District of New York recognized the U.K. Scheme of Arrangement of Mega Newco as a foreign main proceeding.

Mega Newco was a recently created English subsidiary of the Mexican debtor entity Operadora de Servicios Mega SA de CV, which had undergone its own Mexican restructuring in late 2024.[5]

Mega Newco was created, and the U.K. scheme was undertaken, primarily to restructure approximately $351 million in note debt governed by New York law, which Operadora could not achieve through its Mexican restructuring. With the full support of the participating noteholders, Mega Newco was able to successfully effectuate the restructuring of the New York debt that Operadora was not able to achieve itself. Thereafter, Mega Newco pursued recognition of the U.K. scheme under Chapter 15 of the Bankruptcy Code.

Writing for the court, Judge Wiles quickly dismissed any contention that Mega Newco’s U.K. scheme could be recognized as a foreign nonmain proceeding — noting that the limited restructuring activities of Mega NewCo (i.e., the U.K. Scheme) were insufficient to qualify as economic-facing activities that were regularly conducted in the United Kingdom.

Turning to whether the U.K. scheme could be recognized as a foreign main proceeding, he looked to whether the U.K. was the “center of main interests” for Mega NewCo. The presumption under Section 1516(c) of the Bankruptcy Code that an entity’s center of main interest, or COMI, is the location of its registered office, coupled with the lack of any objections to the recognition or the U.K. scheme, was pivotal to his analysis.

While Judge Wiles noted the form over substance in recognizing the synthetic recognition, he pointed to the openness of the U.K. proceeding and the U.S. recognition process to lessen concerns.

The Mega NewCo ruling provides another road map for distressed companies to gain the benefits offered by the Bankruptcy Code without necessarily needing to incur the extensive costs associated with a full Chapter 11 filing. Rather, a debtor may consider initiating foreign proceedings, or multiple foreign proceedings, and subsequently seek recognition through expedited proceedings in the U.S. and ultimately achieving the full force and effect of the restructuring within the U.S. and directly affect U.S.-governed debt.

3. The Nonimpact of Mass Tort Litigation on COMI

The intersection of the Bankruptcy Code and mass tort litigation is not novel. There is an extensive history of companies facing substantial liabilities leveraging the protections of the Chapter 11 of Bankruptcy Code to obtain necessary breathing room to effectuate holistic restructurings.

It follows, then, that a foreign company undergoing foreign restructuring proceedings for similar reasons might seek to avail itself to the protections of Chapter 15. However, the requisite Chapter 15 analysis for such companies laden with mass torts, including that entity’s COMI, may not be as clear as one would initially believe.

Asbestos Corp. Ltd., a Canadian corporation founded in 1925 and headquartered in Quebec, historically operated large chrysotile-asbestos mines and shipped asbestos worldwide. Over several decades, ACL faced tens of thousands of asbestos personal injury lawsuits in the U.S., with the company’s defense and indemnity costs governed by an interim settlement agreement administered by a third-party administrator on behalf of certain London insurers.

However, ACL took the position that a court-appointed receiver could not act on its behalf, resulting in numerous default judgments against the company and a material risk to the company’s balance sheet.

This prompted the initiation of a Canadian insolvency proceeding on May 5, 2025, and, shortly thereafter, a Chapter 15 petition in the Southern District of New York seeking recognition of the Canadian proceeding as a foreign main proceeding, entrustment of U.S. assets to the foreign representative, and extension of the automatic stay to nondebtor parties.

In response, a group of U.S. asbestos claimants objected on three principal grounds:

  • ACL’s COMI was allegedly the U.S., not Canada.
  • Even if the COMI was not the U.S., ACL allegedly lacked any nontransitory business activity in Canada sufficient to recognize a foreign nonmain proceeding.
  • Extending stay protections under Section 362 to nondebtors, e.g., insurers, would allegedly prejudice U.S. claimants, violate Section 1522’s “sufficient protection” requirement, and be manifestly contrary to U.S. public policy under Section 1506.

Writing for the court’s Oct. 29 decision, Judge Martin Glenn found that the settled Fairfield Sentry factors (e.g., location of headquarters, management and primary assets) clearly supported the conclusion that Quebec, Canada, was the COMI of ACL and that no case law supported shifting a debtor’s COMI solely because litigation occurs in another jurisdiction — even if numerous tort creditors were based in the U.S. and asserted litigation claims pursuant to U.S. law.

Additionally, the bankruptcy court noted that ACL clearly had “establishments under Section 1502(2) as it conducted ongoing and non-transitory economic activity in Canada as well.”

Finally, Judge Glenn rejected the claimants’ contentions that they were not sufficiently protected and that recognition was contrary to public policy. Specifically, he noted that arguments on the sufficiency of protections were premature until a plan was finalized in the Canadian proceedings, and the public policy exception is extremely narrow and to deny recognition on that basis would contradict extensive precedent in which the U.S. bankruptcy court has recognized Canadian insolvency proceedings.

The ACL decision underscores that the situs of litigation — even mass tort litigation — does not shift the COMI when the debtor maintains genuine headquarters functions abroad. That is, debtors with extensive U.S. litigation exposure can still obtain foreign-main recognition if their operational center remains abroad.

The decision should provide comfort to foreign debtors that collateral attacks by tort claimants on the recognition of foreign proceedings will not be entertained by U.S. bankruptcy courts — provided that all other requirements for Chapter 15 recognition are satisfied.

Closing Thoughts

Chapter 15 remains an important facet of the Bankruptcy Code and a valuable tool for distressed companies and creditors alike.

The notable Chapter 15 decisions rendered in 2025 underscore how complex restructurings in jurisdictions foreign to the U.S. are still subject to the rule of law in the U.S. bankruptcy courts, but that the principles of Chapter 15 stand steadfast against putative challengers. That is, foreign court orders will be enforced in the U.S., provided the well-structured standard of Chapter 15 is met and recognition of such an order is manifestly contrary to the public policy of the United States.

[1] Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024).

[2] In re Crédito Real, S.A.B. de C.V., SOFOM, E.N.R., 670 B.R. 150 (Bankr. D. Del. 2025).

[3] In re Odebrecht Engenharia e Construção S.A., 669 B.R. 457 (Bankr. S.D.N.Y. 2025).

[4] In re Gol Linhas Aéreas Inteligentes S.A., No. 25-cv-4610 (DLC) (S.D.N.Y. Dec. 1, 2025).

[5] In re Mega NewCo Limited, No. 24-12031 (Bankr. S.D.N.Y. Feb. 24, 2025).

The insurance regulatory and risk landscape was demanding in 2025 — and all signs point to 2026 being even more complex. Across all lines of insurance, insurers are being pulled in two directions at once:

  • Innovate faster, and
  • Tighten controls and costs under intensifying regulatory, geopolitical and economic pressure.

Risk and compliance functions are expected to be jointly strategic — supporting profitable growth, enabling technological innovation and satisfying increasingly aggressive regulation.

Read the full article on InsuranceNewsNet.

The practice of music sampling, which is the integration of pre-recorded sounds into new musical gestures, experienced a golden, unregulated age in the late 1980s that is almost unimaginable today. Major works like Public Enemy’s It Takes a Nation of Millions to Hold Us Back (1988) and De La Soul’s 3 Feet High and Rising (1989) layered dozens of samples on a single track, while massive commercial hits like Tone-L?c’s “Wild Thing” (1988) openly lifted core musical elements.

This era of unregulated creative license and intense sampling is best seen by the Beastie Boys’ 1989 album, “Paul’s Boutique”, a complex sonic work built by producers, The Dust Brothers. While the album is widely lauded by critics and the public alike as a work of important stature and a cultural shift, the legal climate surrounding sampling changed dramatically shortly thereafter, leading many to wonder if sampling was still encouraged or even allowed. The single, definitive legal ruling in the case involving rapper and singer/songwriter, Biz Markie, established the principle, “Thou shalt not steal” changed everything.

Drawing on these cases, we’ll explore the world of music sampling and the legal implications that have evolved over time. Can you still sample like it’s 1989?

Click here to read the full article on IP Watchdog.

State attorneys general increasingly impact businesses in all industries. Our nationally recognized state AG team has been trusted by clients for more than 20 years to navigate their most complicated state AG investigations and enforcement actions.

State Attorneys General Monitor analyzes regulatory actions by state AGs and other state administrative agencies throughout the nation. Contributors to this newsletter and related blog include attorneys experienced in regulatory enforcement, litigation, and compliance. Also visit our State Attorneys General Monitor microsite.

Contact our State AG Team at StateAG@troutman.com.

Podcast Updates

The 12 Days of Regulatory Insights

We are excited to share our special holiday series, “The 12 Days of Regulatory Insights,” as part of our Regulatory Oversight podcast. This 12-part series covers a variety of critical regulatory topics, offering concise and insightful discussions from members of our Regulatory Investigations, Strategy + Enforcement practice group, State Attorneys General team, and several esteemed colleagues across various areas of the firm.

In case you missed an episode, you can listen here.

State AG News

New Jersey Governor-Elect Sherrill Nominates Jennifer Davenport as New Jersey AG
By Troutman Pepper Locke State Attorneys General Team

On Monday, New Jersey Governor-elect Mikie Sherrill announced that she will nominate Jennifer Davenport to serve as the next attorney general (AG) of New Jersey. Davenport, a lifelong New Jersey resident, is currently employed at PSEG, where she serves as deputy general counsel and chief litigation counsel and previously served as senior director – compliance. Her nomination signals a continuation of strong enforcement and regulatory focus, informed by both extensive public-sector experience and recent private-sector roles.

Read more

Iowa AG Obtains Court Injunction and Civil Penalties Against Stem Cell Company in Four-Day Trial
By Troutman Pepper Locke State Attorneys General Team

After a four-day trial, Iowa Attorney General (AG) Brenna Bird obtained a ruling and judgment against Omaha-based stem cell businesses and its owner/CEO for deceptively marketing “regenerative medicine” stem cell injections to Iowans. The court ordered more than $800,000 in restitution, $180,000 in civil penalties, including enhanced civil penalties for targeting elderly persons, and permanently enjoined the company from committing acts or practices that the court deemed in violation of the Iowa Consumer Fraud Act.

Read more

State Enforcement in the Wake of Trump Executive Order Targeting State Regulation of AI
By Troutman Pepper Locke State Attorneys General Team

On December 11, President Donald Trump signed an executive order (EO) that establishes a national artificial intelligence (AI) regulatory framework and attempts to preempt enforcement of state AI laws. Titled “Ensuring a National Policy Framework for Artificial Intelligence,” the EO states that “[i]t is the policy of the United States to sustain and enhance the United States’ global AI dominance through a minimally burdensome national policy framework for AI.” This latest effort follows bipartisan opposition in Congress and among state attorneys general (AGs) to previous legislative attempts this year to supersede state AI laws. While the order seeks to minimize a burdensome AI regulatory patchwork, compliance will remain complex given various state enforcement tools.

Read more

Texas Investigating Global Retail Over Labor Practices, Product Safety, and Privacy Practices
By Troutman Pepper Locke State Attorneys General Team

On December 1, Texas Attorney General (AG) Ken Paxton issued a press release announcing an investigation into Shein US Services LLC Corporate and its affiliates (Shein).

Read more

AG of the Week

Gentner Drummond, Oklahoma

Gentner Drummond was sworn in as Oklahoma’s 19th attorney general on January 9, 2023. His legal career spans nearly 30 years, including service as an assistant district attorney in Pawnee and Osage counties and as an attorney in private practice. In 1999, he founded the Tulsa-based firm, Drummond Law. Drummond, a seventh-generation Oklahoman, also has experience as a rancher, banker, and businessman.

A U.S. Air Force jet pilot during the Persian Gulf War, Drummond led the first combat mission of the conflict and earned several commendations, including the Distinguished Flying Cross, three Air Medals, and four Aerial Achievement Medals.

Since taking office, Drummond has focused on fighting crime, government transparency, improving tribal relations, combating corruption, and protecting Oklahoma from federal overreach. He assembled the first-ever Organized Crime Task Force to address illegal marijuana operations and related criminal activities, such as human trafficking and opioid distribution.

Drummond earned his bachelor’s degree from Oklahoma State University and his law degree from Georgetown University.

In January 2025, Drummond formally announced his candidacy for governor in the 2026 election, returning to his roots in northeastern Oklahoma for the announcement.

Upcoming AG Events
  • January: AGA | Human Trafficking Training | Virtual
  • February: RAGA | Virtual Fund Retreat | Big Sky, MT
  • February: DAGA | Policy Conference | San Francisco, CA

For more on upcoming AG Events, click here.

Troutman Pepper Locke’s State Attorneys General team combines legal acumen and government experience to develop comprehensive, thoughtful strategies for clients. Our attorneys handle individual and multistate AG investigations, proactive counseling and litigation, and manage ancillary regulatory issues. Our successful approach has been recognized by Chambers USA, which ranked our practice as a leader in the industry.

The Financial Industry Regulatory Authority’s (FINRA) 2026 Annual Regulatory Oversight Report is the most current and comprehensive statement of FINRA’s priorities and expectations for member firms. It does not create new legal obligations, but it is clearly designed as an exam and enforcement roadmap. The 2026 Report weaves together FINRA’s FINRA Forward modernization program, new and evolving risks (especially cyber‑enabled fraud and generative AI (GenAI)), and detailed observations on firms’ supervisory, operational, and financial controls. Firms should use it as a structured checklist for 2026 risk assessments, revisions to written supervisory procedures (WSPs), and enhancements to testing, surveillance, and training.

FINRA Forward and the Role of the Report

FINRA Forward, launched in 2025, underpins much of this year’s Report. It has three pillars: modernizing FINRA’s rules to better reflect current markets, “empowering member firm compliance” with more tools and feedback, and intensifying focus on cybersecurity and fraud. Organizationally, FINRA has unified Member Supervision, Market Oversight, and Enforcement into a single Regulatory Operations function, which means firms should expect more integrated, cross‑silo supervision and enforcement.

The Report is explicitly positioned as an evolving reference library. It updates prior topics, adds new ones (notably a dedicated GenAI section), and highlights “effective practices” and resources. Firms are encouraged to read it selectively, focusing on areas relevant to their business lines and risk profile, but examiners will reasonably expect that the Report has informed the firm’s compliance planning.

Cybersecurity and Cyber‑Enabled Fraud

Cyber remains at the top of FINRA’s agenda. The Report ties cyber risk directly to Regulation S‑P (privacy and safeguarding), Regulation S‑ID (identity theft red flags), FINRA Rule 3110 (supervision), Rule 4370 (BCP), and Exchange Act books‑and‑records rules. It emphasizes the 2024 amendments to Regulation S‑P, which require a written program to detect, respond to, and recover from unauthorized access to “sensitive customer information,” including customer notification. Larger firms were to have complied by December 3, 2025, while smaller firms have until June 3, 2026.

Substantively, FINRA continues to see ransomware and extortion events, data breaches, phishing/smishing/quishing, new account fraud, account takeovers, account impersonation and imposter sites. Relationship investment scams, often initiated via text or social media, are a particular concern. The Report also flags GenAI‑enabled threats such as deepfake audio/video and AI‑generated documents/polymorphic malware, as well as “cybercrime‑as‑a‑service” tools that allow less technical actors to launch sophisticated attacks.

FINRA’s “effective practices” now look more like baseline expectations: multifactor authentication for staff and customers; monitoring for unusual logins and payment requests; domain and social media impersonation surveillance; outbound data‑loss controls; network segmentation; BYOD governance; routine training; cross‑team coordination between cyber and anti-money laundering (AML); and structured vendor risk management. The practical question is no longer whether these controls exist but whether they are formally documented, consistently implemented and demonstrably tested.

AML, External Fraud, and Identity‑Based Threats

The Report devotes extensive attention to AML (FINRA Rule 3310) and “external fraud” threats. FINRA continues to find AML programs that are not properly tailored to firms’ businesses, that under‑resource monitoring and investigations (especially after business growth), and that fail to escalate red flags from outside the AML function (e.g., cyber alerts, clearing firm inquiries).

FINRA highlights evolving fraud patterns: disaster‑related donation scams; social media “investment clubs” used to drive pump‑and‑dump activity; gold bar courier scams in which customers are convinced to liquidate portfolios and hand physical metals to “couriers” crypto confidence schemes relying on phony apps; and mail‑theft‑related check fraud. In parallel, FINRA sees persistent new account fraud and account takeovers, increasingly enabled by GenAI through highly targeted phishing, voice clones used in call‑center interactions, AI‑generated identity documents, and deepfake “selfies” that defeat automated KYC.

The Report expects firms to incorporate these typologies into their risk‑based AML and fraud programs, CIP/CDD controls, independent testing, and training. It emphasizes the importance of robust identity verification at onboarding and during investigations, careful scrutiny of omnibus accounts and small‑cap offerings, clear escalation paths for suspicious activity, and use of available tools such as FINRA Rule 2165 (temporary holds) and trusted contact information when exploitation is suspected.

GenAI: Governance, Risk, and AI Agents

For the first time, FINRA devotes a standalone section to GenAI. The central message is that FINRA’s rules are technology‑neutral, meaning using GenAI does not change a firm’s obligations under supervision, communications, recordkeeping, outsourcing, or fair‑dealing standards. However, GenAI amplifies many existing risks and introduces new governance challenges.

FINRA notes that most current use cases are internal and efficiency‑oriented such as summarization and information extraction, conversational assistants, coding support, synthetic data generation, and workflow automation. But even internal deployments can impact supervisory systems and decision‑making. The Report warns about “hallucinations” (confident but incorrect outputs) and bias (skewed outputs due to limited or outdated training data) and expects firms to test for and manage these risks, especially where GenAI touches regulatory analysis, surveillance, customer communications or product design.

Firms are urged to implement enterprise‑level GenAI oversight, with formal review and approval processes for new use cases; model risk management adapted to GenAI; testing for accuracy, reliability, privacy, and bias; logging of prompts and outputs; and appropriate human‑in‑the‑loop review. FINRA also flags AI “agents,” autonomous systems that plan and execute tasks, as an emerging concern.

Third‑Party and Technology Risk

The Report also reinforces FINRA’s longstanding view that outsourcing does not outsource responsibility. Firms must maintain a supervisory system reasonably designed to oversee activities performed by vendors, including technology, AML monitoring, cybersecurity, and key back‑office functions. FINRA notes more frequent cyber incidents and outages at vendors and stresses the importance of understanding concentrations of systemic risk where many firms rely on the same providers.

In 2025, FINRA enhanced its own capabilities by launching Cyber & Operational REsilience (CORE), which collects and shares cyber and technology risk intelligence with potentially affected firms. The Report encourages firms to keep FINRA apprised of changes in critical vendors and to integrate vendor‑related scenarios into incident response planning and testing.

Effective practices include maintaining detailed vendor inventories; structured initial and ongoing due diligence that covers security, resilience and any use of GenAI; contractual limits on how vendor tools may consume and use firm and customer data; continuous monitoring for vulnerabilities and breaches; coordinated incident response with vendors; and disciplined off‑boarding to ensure data is returned or destroyed and access is revoked.

Crypto Assets

The Report reiterates that FINRA’s focus is on member firms’ crypto activities, especially where crypto assets are securities or are offered and sold as investment contracts. FINRA highlights enforcement issues around communications (Rule 2210) that misstate or omit risks, overstate protections (e.g., SIPC coverage), or make unsound comparisons to traditional investments, including content disseminated through influencers.

FINRA also continues to see deficiencies in firms’ due diligence on crypto‑related private placements and products, AML programs that do not adequately address crypto‑related risks, and operational issues such as improper ACATS rejections when customers maintain associated crypto accounts with affiliates. The Report expects firms to understand the legal basis for unregistered offerings, the mechanics and risk profile of crypto securities, and to use on‑chain analytics where appropriate in AML and fraud monitoring.

Retail Communications, Social Media, and AI‑Generated Content

FINRA’s communications findings have a strong digital flavor. Many firms lack robust supervision and recordkeeping around social media influencers acting on the firm’s behalf, including failure to pre‑approve static content, supervise interactive content, or archive posts as required. Mobile app interfaces and push notifications are another area of concern, particularly where they do not adequately explain products (options, margin, complex or crypto‑linked strategies), understate risk, or use gamified “nudges” that are promissory or misleading.

When GenAI is used to draft or deliver communications, FINRA expects full compliance with existing standards: communications must be fair and balanced, consistent with products actually offered, and properly supervised and retained. Chatbots interacting with customers are treated as firm communications and must be supervised and archived accordingly. References to AI‑enabled products or services must accurately reflect how AI is used and balance potential benefits with clear discussion of risks.

Regulation Best Interest and Complex Products

Regulation Best Interest (Reg BI) continues to be a central focus. The Report details failures under the Care Obligation (inadequate product due diligence, recommendations inconsistent with customer profiles, insufficient consideration of costs and reasonably available alternatives, weak documentation of account‑type and rollover recommendations), as well as under the Conflict of Interest, Disclosure, and Compliance Obligations. Many of these issues are most acute around complex or higher‑risk products, including variable annuities, RILAs, options, and certain private placements.

In private placements, FINRA emphasizes that firms must conduct reasonable investigations of issuers, offerings and management; respond to red flags; maintain evidence of due diligence; and comply with private placement filing requirements. FINRA notes continuing concerns with pre‑IPO fund offerings, including misstatements about holdings and access to pre‑IPO shares.

In the annuities space, FINRA highlights problematic exchange patterns, including transactions that increase fees, restart surrender periods or forfeit valuable riders without sufficient benefit, and notes that many firms lack robust WSPs, data and surveillance for RILA recommendations. As an effective practice, FINRA suggests applying Rule 2330‑style heightened controls to RILAs, with documented rationales, principal review, and exchange trend monitoring.

Market Integrity: CAT, Best Execution, Manipulation, Market Access, and Extended Hours

The market integrity section touches several pillars. For the Consolidated Audit Trail (CAT), FINRA continues to find incomplete, inaccurate and untimely reporting, weak error correction and insufficient oversight of third‑party reporting agents. Firms should be able to map internal records to CAT fields, systematically review CAT feedback, and sample reported data against trade blotters.

Best execution under FINRA Rule 5310 remains a core obligation. FINRA expects “regular and rigorous” reviews of execution quality that genuinely compare venues and order types, consider the impact of payment for order flow and venue incentives, and result in modifications or documented justifications where appropriate. The Report also highlights continuing inaccuracies and omissions in Rule 606 order routing disclosures and expects firms to have WSPs that ensure accuracy, completeness, and timely publication.

Manipulative trading, particularly in small‑cap exchange‑listed issuers, remains a high‑priority surveillance area. FINRA describes evolving pump‑and‑dump schemes that exploit nominee accounts, foreign omnibus accounts, undisclosed secondary offerings and, increasingly, account takeover‑driven purchases. Firms are expected to tailor surveillance to their business and customer base and to integrate these patterns into AML and market abuse monitoring.

Under the Market Access Rule (SEA Rule 15c3‑5), FINRA expects pre‑trade financial and regulatory risk controls that are calibrated to firms’ business models and demonstrably reasonable, with clear documentation and controls over intra‑day adjustments. Overreliance on venue‑provided controls, without firm‑level oversight, is viewed as inadequate. Firms are also expected to conduct holistic post‑trade reviews for manipulative activity and document annual effectiveness reviews.

Extended‑hours trading triggers familiar obligations: clear and prominent risk disclosures under Rule 2265, incorporation of extended‑hours orders into best execution, CAT and TRF reporting, and supervisory processes that address lower liquidity, wider spreads and venue‑specific price bands overnight. FINRA also expects firms to think about operational readiness and customer support during overnight trading sessions.

Financial Responsibility, Liquidity, and Customer Protection

The Report underscores ongoing issues and new requirements under the net capital rule, customer protection rule, and liquidity management expectations. FINRA continues to identify improper revenue and expense recognition, misclassified assets and liabilities, and incorrect haircuts or OCC charges, particularly in underwriting arrangements. It points to recent SEC actions requiring EDGAR submission of annual reports, forthcoming XBRL tagging requirements for FOCUS reports, and amendments to customer and PAB reserve computations. Most notably, the requirement for certain firms to move to daily reserve computations by June 30, 2026, with corresponding funding and liquidity implications.

FINRA’s Supplemental Liquidity Schedule (SLS) has become an important supervisory tool, and the Report notes recurring SLS errors, such as misidentified counterparties, incomplete reporting of securities borrowing and lending, and inaccurate collateral data. Firms are expected to maintain liquidity governance frameworks, run stress tests that reflect both firm‑specific and market‑wide shocks, and maintain contingency funding plans that realistically account for contractual covenants and the potential unavailability of certain funding sources under stress.

Under the Customer Protection Rule (Rule 15c3‑3), FINRA continues to observe weaknesses in reserve formula computations, customer vs. noncustomer classifications, management of suspense items, possession or control of customer securities, and reconciliations with external custodians. FINRA stresses the importance of experienced FINOPs with appropriate access to books and records and of ongoing variance analyses and control testing.

Senior Investors and Trusted Contacts

The Report reaffirms FINRA’s focus on senior and vulnerable investors. It notes that many firms still fail to make reasonable efforts to obtain trusted contact information (Rule 4512), do not provide customers with clear disclosures about how trusted contacts may be used, and rely on Rule 2165 (temporary holds) without documented training or internal review procedures. FINRA encourages firms to integrate senior investor protection into their broader fraud and AML frameworks, including escalation protocols that involve trusted contacts, Adult Protective Services and law enforcement where appropriate, and to provide staff with practical “playbooks” and training on recognizing exploitation and diminished capacity.

Practical Implications

In practice, the Report functions as a detailed “to‑do list” for 2026. Firms should map its topics to their own business activities, update risk assessments, and then prioritize enhancements to WSPs, surveillance, testing, and training. This is particularly important in the areas of cyber and fraud (including GenAI‑enabled threats), GenAI governance, Reg BI and complex products, digital communications, market integrity controls, liquidity management, and senior investor protection. While the Report does not introduce new binding rules, it sets out the standards against which FINRA will evaluate whether a firm’s compliance program is reasonable, risk‑based and responsive to today’s investor and market risks.